Skills and Training Minister Brendan O'Connor said: “By backdating this reform to last year, we are ensuring that apprentices, trainees and students affected by last year's jump in indexation receive this significant relief from the cost of living.”
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Australia's university fees scheme, known as HECS when it was launched in the 1980s and since renamed HELP, is widely regarded as a successful scheme that enabled many Australians to obtain degrees and increase earning capacity.
The scheme obliges students to pay only when their income meets a certain threshold.
But student advocates, MPs and experts have recently questioned the fairness of the scheme as universities raised fees and inflation rose, leading to a jump in indexation.
Independent MP Monique Ryan, a member of the Green cohort of MPs who drew support from younger voters in their former Liberal electorates, gathered 270,000 signatures on a petition to modernize the student loan system.
He said last month that a person on a salary of $60,000 with $25,000 in outstanding debt would have seen their debt rise by about $1,200 if it had been indexed to inflation by the middle of this year.
Member of Kooyong Dr. Monique Ryan.Credit: Alex Ellinghausen
“Yet in the last year they will have paid just $1200. In other words, hundreds of thousands of Australians with HECS debt are treading water or seeing their HECS debts rise despite working hard to pay them off “, he said.
“This is unsustainable.”
Economics professor Bruce Chapman, founder of the HECS system, said it was unprecedented for a government to write off debt retrospectively.
“However, this will not change the amount a graduate pays in a given year or period because repayments are charged as a proportion of a person's income,” he said.
Bruce Chapman, Professor of Economics at the Australian National University.
Mr Chapman said the measure would have the effect of reducing the size of a person's loan and therefore decreasing the amount of time it would take to pay off their debt, which effectively works as a tax on income. For example, he said, a person who might be about to pay off their debt in a decade could now do so six months earlier.
Chapman said there had been a lot of anxiety in the community over last year's 7.1% indexation, which led to widespread media coverage and political pressure on Labour.
It was rare for inflation to run at a rate significantly higher than wage growth, he said, meaning the shift in labor in the indexation calculation is unlikely to be as significant in the coming years as it has be during the recent outbreak of inflation.
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“I think this will be welcomed, and it's a politically astute move,” he said.
In another announcement by the Albanian government ahead of the May 14 budget, Finance Minister Katy Gallagher revealed that Labor had found $1 billion in savings by reducing the use of consultants and contractors.
The savings are on top of $3 billion in future external labor spending cut by the government last year.
